KEY DATA FOR OPTION 1 - ONLINE: Investment required (remember to depreciate existing long-term assets at the 2008 amount and ignore the half year rule for 2009 new depreciation i.e. apply a full year value for depreciation). $600,000 software, expected life 3 years, zero residual value. $1,500,000 warehousing, expected life 10 years $500,000 residual value. 30% additional inventory versus 2008 year-end amount, for the foreseeable future. Sales will increase by 30% versus 2008 and total gross margin in 2009 will be 50% (note this will include deferred revenues from prior year and deferred revenue in 2009 will be equal to 2008). A/R and A/P will not change vs 2008 (online = immediate payments both ways). SG&A Expenses will increase by 10% versus 2008 in 2009. KEY DATA FOR OPTION 2 - BOUTIQUE: Investment required (remember to depreciate existing long-term assets at the 2008 amount and ignore the half year rule for 2009 new depreciation i.e. apply a full year value for depreciation). $5,000,000 for new stores, expected life 10 years, $1,000,000 residual value. 100% additional inventory versus 2008 year-end amount, for the foreseeable future. Sales will double versus 2008 and total gross margin in 2009 will remain at 30% (note this will include deferred revenues from prior year and deferred revenue in 2009 will be equal to 2008). A/R and A/P double vs 2008 (double sales and same business model). SG&A Expenses will increase by 50% versus 2008 in 2009. YOUR DELIVERABLE: - Fill in the Green Cells & Do Not Touch the Yellow Cells Use the excel spreadsheet provided ($s expressed in 000). Many line items in the financial statements have been populated with either the data required or the formulas to calculate the correct amounts. Do not input any data into a cell highlighted in yellow. 1. Prepare pro-forma income statements and balance sheets for the two options considered. For calculation purposes, assume the options will be implemented effective January 1st 2009. (i.e. build financials for a full year for each option) HINT remember to prepare the income statement first, using all the data provided above. The change to equity will be recorded entirely to Retained Earnings. There will be no change to Common Stock. Build the rest of the Balance Sheet using the information provided and allow the spreadsheet to PLUG the cash balance in order for your Balance Sheet to balance. (formulas already in that cell for you) 2. Calculate the key financial ratios for all past years and for the two options considered.

How to find receivables and inventories?

BALANCE SHEET CODE 631822 INPUT THE C Dec-05 Dec-06 Dec-07 4,702 1,962 2,755 317 9,737 4,105 2,004 2,824 294 9,227 2,862 2,034 2,955 288 8,140 As at Cdn$ Thousands Assets Current assets Cash and cash equivalents Receivables Inventories Prepaid expenses Total current assets Non-current assets Property, plant and equipment Gross property, plant and equipment Accumulated Depreciation Net property, plant and equipment Intangible assets Other long-term assets Total non-current assets Total assets 8,807 (3,451) 5,357 623 309 6,289 16,025 8,865 (3,589) 5,275 623 206 6,105 15,331 8,865 (3,674) 5,191 623 194 6,009 14,149 BALANCE SHEET CODE 631822 INPUT THE C Dec-05 Dec-06 Dec-07 4,702 1,962 2,755 317 9,737 4,105 2,004 2,824 294 9,227 2,862 2,034 2,955 288 8,140 As at Cdn$ Thousands Assets Current assets Cash and cash equivalents Receivables Inventories Prepaid expenses Total current assets Non-current assets Property, plant and equipment Gross property, plant and equipment Accumulated Depreciation Net property, plant and equipment Intangible assets Other long-term assets Total non-current assets Total assets 8,807 (3,451) 5,357 623 309 6,289 16,025 8,865 (3,589) 5,275 623 206 6,105 15,331 8,865 (3,674) 5,191 623 194 6,009 14,149